In the early part of 2016, uncertainty around fiscal policy and the Affordable Care Act continued to fade as concerns, but those concerns were replaced by fears of a stronger dollar, weaker energy prices, and uncertainty surrounding China. In the latest Beige Book, the concerns around the dollar, China, and oil have faded; in addition, there weren’t any mentions of concerns about the upcoming U.S. presidential election or the June 23, 2016, “Brexit” vote on whether the U.K. will remain in the European Union. China had just 3 mentions in the latest Beige Book, well below the 8 China mentions per Beige Book in the late summer and fall of 2015. China averaged only 2 mentions per Beige Book from 2011 – 14. As we noted in the Weekly Economic Commentary, “China Challenge,” while the Chinese economy has been slowing for more than five years, the news media and U.S. financial markets have only recently seemed to have taken note. In the latest Beige Book, 2 of the 3 China mentions were in a negative context.

The concerns about a stronger dollar eased substantially in the latest Beige Book, as the value of the U.S. dollar versus the currencies of its major trading partners generally moved lower over the first five months of 2016. There were only 2 mentions of “strong dollar” in June—down from the 15–20 mentions per Beige Book from September 2015 through January 2016. The 2 mentions in June were the fewest since the March 2015 report. To put these readings in context, the strong dollar was mentioned, on average, 13 times per Beige Book in 2015, but just once per Beige Book in 2014 and early 2015, and got virtually no mentions in 2011 – 13. Since the big run-up in the dollar between late 2014 and early 2015, the dollar has received, on average, 20 mentions per Beige Book. At current levels in the second quarter of 2016, the dollar is down 2–3% from a year ago, after rising 15–20% year over year throughout most of 2015. If it holds these levels, the dollar could be a modest tailwind for commodity prices, exports, manufacturing, and overseas earnings over the remainder of 2016.

Optimism Stil Rules

In the June 2016 Beige Book, the word “optimism” (or its related words) appeared 17 times, whereas the word “pessimism” appeared just 2 times [Figure 5]. In the 12 Beige Books released since early 2015, optimism appeared, on average, 19 times per Beige Book, while the word pessimism has appeared a total of just 15 times, with 11 of the 15 mentions coming in the Dallas and Kansas City districts, who were commenting on the outlook for the oil and gas sector.


As reassuring as it is to see that Main Street can remain optimistic despite the flow of bad news, the large number of optimistic comments in the Beige Book is not the start of a new trend: In the 8 Beige Books released in 2014, the word “optimism” appeared, on average, 30 times. In 2013, “optimism” appeared, on average, 25 times per Beige Book. In the 8 Beige Books released in 2009, during some of the worst of the financial crisis and Great Recession, the word “optimism” appeared, on average, just 9 times.

Concerns that today’s economic and market environment is similar to the onset of the Great Recession and the stock market peak in late 2007 also appear to be misplaced. In the 8 Beige Books released in 2007, the word “optimism” appeared, on average, just 10 times per edition — a far cry from the 30 times per edition in the 8 Beige Books released in all of 2014, the 21 times per edition in 2015 and the 16 per Beige Book so far in 2016.

John Canally is chief economic strategist for LPL Financial.

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